Net profit climbed to 1.43 billion Saudi riyals (Dh1.4bn) in the three-month period ending June 30, the bank said in a regulatory filing to Saudi stock exchange, where its shares are traded. Quarter-on-quarter, profit surged 38 per cent. Total operating income climbed 4.3 per cent to 1.88bn riyals at the end of the period, it said.

Profit for the period came in above the average analysts' estimate of 1.12bn riyals, according to Reuters data, which included SICO Bahrain’s 1.09bn riyals, EFG Hermes’ 1.08bn riyals and NCB Capital’s 1.19bn riyals projections.

“The increase in net profit was primarily driven by a 33.7 per cent decrease in operating expenses, mainly due to a decrease in provisions for credit losses,” Sabb said in the bourse filing.

The lender’s first half net income also climbed 14 per cent year-on-year to 2.47bn riyals. The rise came despite a 3.8 and a 3.9 per cent drop in loans and advance portfolio and customers’ deposits respectively, during the period, it noted.

Banks and financial institutions in Saudi Arabia, along with their peers from six-member economic bloc of GCC, are expected to boost profitability this year as economic activity picks up after a three-year oil price slump. Analysts including those from Moody’s and Standard and Poor’s expect the operating environment to improve further and credit growth to return as governments in the region shift focus from austerity to spending amid an uptick in oil prices.

Regional banks will see "slight recovery in loan growth, driven by the corporate segment, and an improvement in spreads quarter-on-quarter", Egyptian investment bank EFG Hermes said in its Mena banks second-quarter preview paper published earlier this month.

Sabb last month reached an initial agreement on the terms of a possible merger with rival Alawwal Bank, which is 40 per cent owned by RBS as the merger discussions move to an “advanced” stage. The two lenders have signed a “preliminary, non-binding agreement” on the share exchange ratio, they said in a statement to the Tadawul stock exchange.

Sabb said it “does not expect that the proposed merger will, if completed, result in any involuntary lay-off of employees”.

The deal is subject to regulatory approvals but, if it proceeds, would mark Saudi Arabia’s first bank merger for almost 20 years, creating an entity with about $73bn in assets, according to a Bloomberg report.

Banks in the region have increasingly looked to merge to gain scale in order to cope better with the tougher operating environment in the wake of lower oil prices. Kuwait’s Sharia-compliant lender Kuwait Finance House’s merger with Bahrain Ahli United Bank is another big ticket deal in the making after National Ban of Abu Dhabi and First Bank merged in the UAE to create First Abu Dhabi Bank last year.